It’s all good. Your situation works for you, and that’s great. Kids need a level of stability, for sure. I think everybody understands there are some, perhaps many, intangibles that are worth the money.

In general, though, strictly in terms of economics, for people who are making a rent-vs.-buy decision, I think the board continues to reveal that 1) Renting is still substantially cheaper than buying, apples-to-apples, and 2) housing prices have (perhaps much) further to fall. Which is why I continue to rent. I don’t have kids, and the chick in my pool is not that concerned about stability beyond my ability to keep her in whatever she “needs”.

Lastly, I admit that worrying about a landlord default is a consideration nowadays that wouldn’t have been thought to be part of the equation 3-4 years ago.

I don’t think I was making the claim that anybody who bought in 2004 has a lower cost than renting. I am saying that I do. And granted, I could find something cheaper. I could also move to a neighborhood on the other side of town, without good schools or nice shopping. I pay more because I like where I live. I have a 2000 sf single story house with a nice sized yard for the kids. A newer neighborhood, 15 minutes from downtown and 5 minutes from huge new shopping, entertainment and dining. I pay more for this. I pay more because my house is all one level. To find a comparable rental in my area would cost 1600 minimum. I bought in a good neighborhood. I looked at new homes, on tiny lots 30 plus minutes from jobs. The same money as mine. They are a dime a dozen, and can be rented cheaply. So those buyers in 2004 could rent for less. But that was never my point. For me to rent would require me to come out of pocket. Why would I spend 30-40k to save 200-300 per month? This is my home. It is where I live, where my kids are growing up.

Which of course brings me back to the point. When you own your home, you have greater stability. For some stability is not a plus. at 20 or 21, a house would have been nothing but a burden. At 30, it is a reassurance. I don’t have to worry about the landlord defaulting, and being evicted on a week’s notice.

The thing is the mortgage rates. when I bought in 2004, my mortgage was at 4 and three quarters. The lowest I can find now is 6 and three quarters. At 6.75 a thousand dollar mortgage payment pays for a $154178 mortgage. At 4.75, you can afford a $191,700 mortgage. A full 10 percent drop. If rates rise to 8 percent, the mortgage afford drops to $132683.

So the payment on a house that sold in last year for 200000, which now sells for 165000 have the same monthly payment. Which for most of us is what matters. If prices continue to drop as precipitously, even if interest rates rise, it is not a big deal to not buy. But if prices don’t drop 10 percent per year, and rates go up moderately to historical averages. Well, affordability drops again. Housing markets do have long swings. So the guy who bought last year, if he has to sell next year, is out of luck. But if he plans on being in his house for 10 years, he will likely be better off in the long run.

Housing is an expense. It can also be an investment. But both need to be accounted for.

I know middle class people that will buy a 40 thousand dollar car. I think that is insane. I say to myself Why would they do that. There are perfectly good alternatives out there for 20 grand. They do it because they want to. Because they want the sat nav, or the 8 cylinder engine (I was going to say 12, but then I remembered that almost anything with 12 would be in the 80k plus range). Its an expense, that they have deemed necessary.

In economic terms, home purchase and home rentals are imperfect substitutes. Apples and oranges. And like the fruits, have different qualities. Applies and oranges are both nutritous, sweet and grown on trees. Apples store better, and oranges can be eaten by denturer wearers. But you just can’t make a pie with an orange. Nor does an apple in the toe of a christmas stocking really do the same job. A silly idea, but it makes some people pay more for one than the other.

To me, renting is like leasing a car. It can make sense, sometimes. It is less expensive over the short run. It gives you transportation and gets you into a much better car than you could afford otherwise. But at the end, you have nothing to show for it.

So many people buy. Despite the fact that it depreciates faster than a fresno mcmansion. why? Despite its depreciation, it is an asset. And you have to pay for the expense anyway. If I buy in 30 years I will be done paying the mortgage. The renter, still paying. The question is not whether it makes financial sense to buy at all, but whether it makes sense for the individual to buy at that moment.

Thanks for the input. I believe the 50% came from the Republic- and you know what sticklers for accuracy they are. Right.

FHA loans: increased up front MI to 3.5%; which is a refundable MI if you sell or refi to conforming loan. (84 months pro-rated)

FHA loan Rescue loans:(Only new using loans 90% appraised value) FHA will Refinance under water loans to 90% of appraised value. With 3.5 monthly MI and seller sharing profits with FHA when sold.

HR 3221: Housing assistance act of 2008

Remove loop hole of Seller paid down payment on FHA loans. As of 10/01/08

Retroactive to 4/01/08 a home buyer Credit

10% of sales price up to a max of 7,500 to first time home buyers with a maximum income of 150,000 if filing jointly and 75,000 single.

FHA removes risk based pricing for Mortgage insurance! This was nasty.

FHA loan Rescue loans: increased up front MI to 3.5%; which is refundable if you sell or refi to conforming loan. (Only new using loans 90% appraised value) FHA will Refinance under water loans to 90% of appraised value. With 3.5 monthly MI and seller sharing profits with FHA when sold.

Only the “Seller” paid assistance is gone after 9/30/08 which merely increases purchase price.

Real DPA through of Grants, county Chicanos por la Causa etc. is still OK,

For a buyer to need DPA he would also need seller assisted closing costs or 6% paid by seller on top of his 6% Realtor fee,

Result Buyer over pays for similar home.

But think of the benefits.
More realistic home price for Buyer and a 7,500 interest free loan from the Government.

(10 of sales price up to 7.5K paid over 15 years)

Another benefit is that no money down, no money paid for closing has resulted in 10/1 defaults over FHA with 3% down paid by buyer. FHA has lost 3.1 billion in loans with Seller paid DPA. It was a loophole used by sellers to move inventory with buyers paying the premium.

Seller paid DPA = Good riddance.

I wanted to ask you about that. I was reading that at the moment, about 50% of buyers in the Valley were using DPA, so this could really hurt.

Do you think that 50% number is right?

The market needs knife catchers at this point so the propaganda machine is gearing up. Problem is credit is tight and home prices still haven’t slid to the affordability index in most locations yet.

What’s the national median family income? $50-75K So $150-225K home prices. Where do you find that? Way out in the boonies, far from jobs and major markets (kansas). Costs a lot to drive your gas guzzling SUV to work and shop. And now the tougher qualifying standards mean money down, good credit and a real job. I don’t want to say this is demand destruction as this is the way it was before and should be now, but not with our spend thrift nation.

Housing prices have to slide to affordability or wages have to increase. The latter is just not going to happen, CEO’s want all the profits for themselves and shareholders. We are losing jobs folks. I just can’t see the dynamic changing, only getting worse.

Very respectfully, I would suggest that anybody who bought in 2004 with 20% down does NOT, generally speaking, have a same or lower cost than renting, unless they are married to a neighborhood. Obviously I don’t know what the sf is on your house or the $1700 rental, but I would suggest the people renting for $1700 can find a better deal elsewhere.

Housing markets are not like stock markets. When prices go down, they stay there for YEARS, bouncing along the bottom.

Wait until you see prices NOT falling, for at LEAST six months, and preferably a year.

When you see that, it’s likely that the crash is over.

Another good metric: buying a house should SAVE you money on a monthly basis – WHEREEVER you live, be it San Francisco, Pheonix, or Kansas City. If it doesn’t, the fall isn’t over yet. If it costs more to buy, then you’re doing it wrong – stop.

Second that … Don’t Have a Cow!

Billionaire Bond Trader Bill Gross gives his forecast on Home Prices: MUST SEE

http://www.cnbc.com/id/15840232?video=802818042&play=1

The declining market ate up my down payment. I don’t really care, because I intend on staying in the same place. My cost per month is the same as renting (and I bought in 2004!). My monthly payment is 1600, the house across the street is renting for 1700. Plus I get the interest deduction. But it puts us in a bind where we would have to come substantially out of pocket (50-60k) for a month. I talked to the bank about “transferring” the mortgage to the new home (ie releasing deed of trust and obtaining 1st deed of trust on new home), but that doesn’t fit within their corporate guidelines.

Long story short – free up credit and the problem is solved. I am not suggesting we lend at 5 to 6 times annual income, nor that people with 500 credit scores get access to a half mil line of credit. But if the banks would work with people, the housing market would imrpove.

Really, I think last week was a better week to buy than this week. As mortgage rates shot up 1/2 a point last week from 6.18 to 6.7 for a 30 yr fixed in our neck of the woods.

The house directly across from the 1700 rental is now being sold. If you put 20 percent down, a 30 yr fixed at 6.8 percent would put PITI at 1445 per month. the 20 percent down with a few thousand in closing costs (which would likely be thrown in as an incentive) would earn 3-5 thousand in interest at 6-10% annually (which given todays market is optomistic). Thus a down payment has an opportunity cost of 250-400 per month. so your real cost, exclusive of maintenance is 1700-1850 per month.

Home interest deduction may or may not apply, so I haven’t factored this in. I often forget that not everyone takes advantage of this, as I have itemized every year for the past few due to church donations. But if you do take an additional 10k in deductions because of the home purchase, at the 25% tax bracket, you save about the same as your interest gain as you would have had on the down payment.

It is a trade off, and nowhere near a slam dunk. But in exchange for your commitment, you get a home. A place that you cannot be evicted from because the landlord is in default. A place you can do what you want with (mostly). A place that will give a better return every month as the interest you pay each month declines.

It would not be great if you plan on moving in the next 2-5 years. If you plan on needing a bigger and/or smaller house in the next 2-5 years (starting a family or empty nest). It would not be great if your debt to income ratio is high, or the house you are purchasing is more than 3x your income.

Summary – as credit loosens, the market will improve. Not before.

Stupid buyers. Don’t they know we’re running out of land?

Chuck Ponzi

“I know it is frustrating to have so many showings and no offers. I don’t believe that reducing the price would help. The real problem we have in today’s market is that your house has to compete with all the foreclosures. They are generally priced (Per Sq/Ft) lower. At the same time, they are also not in as good condition as yours, however, people will often sacrifice condition for price reduction.

The hardest thing to keep from doing now days is to look at Days On Market. That average numbers has changed since you listed your home, and continues to change almost daily. Once again the news this morning had record number of foreclosure figures. We are just running out of buyers.”

How’s that for Honesty??

That’s why “build equity” is in quotes. For me it means that I’m going to save money for a downpayment to eventually buy a house. For every dollar I save for a downpayment is one dollar of equity in the I home I will purchase. It’s also 1.5 dollars of interest on top of the principal that I won’t have to pay. If I end up being able to save 20% due to declining home prices and saving over the next 1-2 years I save even more money on interest and PMI.

How’s that for honesty? And I live in DFW, one of the so-called ‘good’ markets.

I hate to be ‘Captain Obvious’ here, but how can anyone ‘build equity’ by buying a home in a declining market?

Me, I’ve just given up talking people out of buying homes. I say, ‘Try it, and let me know how it works out for you.’

If you follow Cramer’s logic, and ignore almost everything else we know about reality, buying makes sense. It’s sort of like a pilot flying a plane by just looking at the instruments – and flying the plane into a mountain.

Buy now. Prices won’t be this cheap until next month. And the month after… and the year after, and so on and so on.

But just buy, buy, buy.

I agree- it’s a great time to “build equity” by renting. Put the difference between renting and buying in the bank, let the landlord pay the maintenance costs, and figure that every dollar that homes drop in price is a dollar you won’t have to pay for.

Why throw away money on a mortgage?

However, homes are only cheap where their are really no good jobs.

But of course, today’s smart buyers were smart sellers back 5 or 3 years ago! If you are looking for a more affordable home to live in, it’s not really all that bad a time to be saving up the downpayment and shopping around for a nice foreclosure, interest rate, and of course a good loan or lender!